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USD/JPY: What is Behind the Sharp Rally
USD/JPY is on a tear this morning following the better than expected jobless claims report. I think traders are relieved that the deterioration in the labor market can officially be blamed on Mr. Frosty because jobless claims have reverted back to pre-snow storm levels. Although I am worried by the sharp rise in the number of people receiving extended and emergency unemployment benefits, that is clearly not what the market cares about right now.
USD/JPY is trading off U.S. rates (yields) and not stocks. The following chart shows the strong relationship between USD/JPY and the 10 Year U.S. Treasury yield. This relationship holds for shorter term yields as well like the 2 year bond yield